The 5% target for this year’s national fiscal revenue increase, if approved next month, would be higher than 2016’s goal of 3% and will mark the first time the government has raised the figure since 2012.Most commentary on the weak yuan focuses on its trade impact, but the real "benefit" is from domestic inflation.
Growing inflationary pressures in the country since late last year may have provided conditions for such an increase, since the lion’s share of China’s tax revenues is generated from indirect taxes that are typically based on prices. And as prices go up, so does government income from these taxes.
The producer price index, a key gauge of wholesale prices, rose for the fourth straight month in December to hit the highest level in more than five years after having previously lingered in negative territory for 54 months in a row on sluggish domestic demand.
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